Stock Markets vs Casinos

 

The stock market is essentially a reverse casino, but only when approached correctly.

Casinos — Negative Inflow

The most important aspect of the Casino is that is it is a profit making enterprise, i.e., it makes money for itself and it's owners.

As they say:

"The house always wins"

So the net flow of money always has to be towards the casino, away from the gamblers. All else being equal, the gamblers — on average — lose money.

Stock Markets — Positive Inflow

The stock market is essentially the reverse of a casino; it is essentially a place to share ownership and profits of commercial enterprises.

The profits are redistributed as dividends, or as retained earnings that lead to an increase in intrinsic value; which eventually reflects as an increase in stock prices and capital gains.

Financial Industry — Negative Inflow

The important thing to remember is that there is a second entity around the stock market and that is the financial industry — analysts, brokers and the government.

All these entities are again net negative, i.e., they make their money from the average public.

Don't Speculate or Trade

One of the most important aspects to profitable investing is therefore to increase exposure to the stock market while reducing exposure to the financial industry.

This is means investing as much as (safely) possible for as long as possible, and trading as little as possible.

By investing larger amounts over longer periods, you increase exposure to the stock market.

By reducing your trading activity to a minimum, you also minimize losses from brokerage, taxes and bid-ask spreads.